Now, the current plan is better than the original one, having more oversight, and requiring equity stakes. I still don’t like the proposal, because it won’t work on the areas of our economy that need help now, mainly the short term lending markets between banks.

Not that anything is certain in economics; the global economy has been straining over the last few years to goose growth in ways that seem foolish to me. We know the lessons of mercantilism. Why force exports when the returns may prove to be far less than advertised? China may laugh over a growing economy where they sell an increasing amount to the US, but what are they receiving in return but devaluing US T-notes?

Look, there is a better bailout available. Aim at the short term lending markets; use the $700 billion to recapitalize the Fed, and let them provide liquidity until the short-term lending markets calm down.

Or, use the money to take super-senior convertible stakes in financial institutions that are in trouble. If the government is bailing institutions out, let them do it in a way that minimizes loss, that they would have a senior creditor position if there is loss, and significant ownership if there is a recovery.

With that, I close by saying don’t listen to foolish people who say that we can make money off of the bailout. The objective of a bailout is to lose less money than you expected. There are rare cases where money is made, but as we would expect with government intervention in tough times, the incentives are perverse.